After recovery, Sensex plunges again on China fears

25 August 2015

Indian stock markets, showing alarming volatility over the past two days, started on a bright note on Tuesday, with the BSE Sensex climbing around 380 points in opening trade, but a sharp selloff in China shares triggered another round of panic selling in equities.

On Monday, the Sensex had slumped nearly 450 points, while the National Stock Exchange's Nifty hit 7,667 at its day's low - their lowest levels in a year. The Sensex shed over 2,500 points or 9 per cent over the last four sessions. However, Indian markets pared losses in noon trade amid buying at lower levels. At 12:20 pm on Monday, the Sensex was down nearly 100 points to 25,639 while Nifty was off 32 points at 7,776.

The rupee slipped 12 paise to 66.76 per dollar after earlier pulling back to 66.39 against the greenback. A breach of 67 per dollar can accentuate the selloff in domestic stock markets.

India's volatility index, often called a fear gauge, was up 17 per cent on Monday after earlier hitting its highest level since May 2014. The gauge surged 64.4 per cent on Monday.

Traders are concerned about the increasing momentum of selling by foreign investors, who own around 25 per cent of BSE 200 stocks. Over the last three sessions, foreign investors have sold shares worth nearly Rs9,000 crore in the cash segment, leading to a slide in Sensex and Nifty.

Most traders are bearish on markets and have gone short. Investors are also facing payment problems, which is creating down side pressure.

Worries that the Chinese economy, the most important engine for the world economy, was growing at a much slower pace than Beijing's 7 per cent target for 2015, has weighed on global stocks.

Indian markets are expected to continue falling till China stabilises. China's stock markets opened 6 per cent lower today, saw some recovery, but came under sharp selloff again. As of noon, both the Shanghai Composite index traded around 8 per cent lower. Tuesday's losses come on the back of 15 per cent fall in the last three days.

US stock futures traded 1 per cent higher, indicating some respite from selling on the Wall Street when it opens later in the day. Overnight, the Dow Jones Industrial Average briefly slumped more than 1,000 points - its most dramatic intraday trading range ever. It closed down 588.4 points, or 3.57 per cent, at 15,871.35.

Indian Finance Minister Arun Jaitley briefed Prime Minister Narendra Modi on the selloff on Monday evening. Jaitley said he wanted more steps to be taken to strengthen the Indian economy but cautioned that this could not be done in the next day or two.